The Technology That Independent Financial Advisors Actually . - Kitces

IntroductionTechnology plays a crucial role in helping financial advisors better serve their clients.RIA) channel than from a broker-dealer (though our survey sample included many advisors from each of those channels).From industry-specific tools (e.g., financial planning, portfolio management) to gen-We characterize this group of financial advisors as ‘financial advicers’ to reflect that par-eral tools (e.g., spreadsheets, e-signature solutions), technology helps advisors be moreticular subset of advisors who are focused on delivering financial advice (and not sellingefficient in servicing clients and can even help expand their value proposition by doingfinancial services products) as their primary value proposition.more and going deeper for their clients.This lack of representation is certainly not unique to our study (most advisor studiesA number of industry surveys exist to help inform advisors about technology used inhave some bias towards their primary base of advisor participants), but we think it istheir practices, and advisor satisfaction with those technology solutions. However, aworthwhile to be transparent about and mindful of the differences that exist in ourmajor limitation of most industry surveys is that they operate based on open survey linkssample. If you fit the Financial Advicer description above – and particularly if you are inthat can be taken by anyone. Even if there’s some attempt to verify that individuals tak-an independent channel, whether independent BD or RIA – then our findings may being the survey are actually advisors, many software companies encourage their (typicallymost relevant to you. More generally, given the ongoing shift of financial advisors frommost satisfied) users to participate in the open-link surveys, which ultimately turns suchproducts towards advice, we also believe this sample is a strong representation of wheresurveys into a sort of popularity contest with companies incentivized to try to “stuff thethe broader financial services industry is going as well.ballot box”, rather than a genuine tool for understanding advisor usage of and experience with different technology tools.As a result, in 2021 Kitces Research launched an invitation-only survey for the tens ofthousands of advisors in our Kitces community. We created a unique URL specific toeach person invited to participate in our survey, which could only be used once (preventing any sharing by advisors or the technology companies they use).However, being mindful of the biases we are aware of in our sample, we have taken extrasteps to adjust certain metrics to at least attempt to adjust for known differences withinour sample, relative to the general advisor population.In practice, we make these sampling representative adjustments using advisor-headcount-by-channel data provided by Cerulli Associates. For instance, according to recentdata from Cerulli, there were a total of 123,162 individuals within the independentNotably, we did still encounter software companies trying to stuff-the-ballot-box byindustry channel. Of these, 29.8% were in the independent RIA channel (36,642 advi-sharing clever workarounds to our survey constraints, but given the nature of our recruit-sors), 47.4% were in the independent broker-dealer channel (58,419 advisors), and 22.8%ment method, we were able to identify this behavior and exclude such responses. (Notewere in the hybrid channel (28,101 advisors). For the purposes of our weighting, we treatto tech companies: Don’t bother trying that again. You are just wasting your and yourhybrids as first and foremost associated with a broker-dealer, since hybrid advisors areusers’ time!)often constrained by the same ‘home office’ forces that impact broker-dealer selectionand use of technology.Participants In The Kitces Research Technology StudyUsing these Cerulli channel weights, we adjusted our top-level market adoption ratesNotably, our Kitces community is not representative of the industry of “financial advisors”for the various software categories. As a result, even though our sample had a tilt towardas a whole. Our readers tend to be more advice-centric (i.e., less likely to be primarilyindependent RIAs (even within the independent channel broadly), we believe ourselling products for commissions), fiduciary-minded, slightly younger than the averagechannel adjustments to these statistics allow us to capture the broader trends of advisoradvisor, and committed enough to continuing education that they self-select into con-technology across the entire (RIA and broker-dealer) independent channel. Though, assuming our in-depth, long-form educational content.discussed later in this report, there were significant differences in adoption of certainAs a result of these background psychographics, our sample is significantly more likelyto have CFP certification and is more likely to come from the independent RIA (or hybridThe Kitces Report, Volume 1, 2021software categories across channels, which reflects the different frictions in the marketing and sales process by channel that are driving adoption rate differences.Introduction 7 of 74

Nerd Note: While we have adjusted our high-level software category adoptionSoftware Category Adoption Ratesrates, unless noted otherwise, we have not applied similar adjustments withinspecific software categories with respect to the user ratings of the software.As such, our more RIA-centric sample – a higher proportion of RIAs than thegeneral independent advisor population – could be biasing results more in thespecific software company ratings and adoption rates. However, in our internalreview across all software categories, there were not any major statistically significant differences in user ratings for technology solutions between RIAs andindependent broker-dealers, making channel weightings for user satisfaction amoot point. As our sample continues to grow in future studies, though, we aimto make even more refined adjustments to identify any further differences thatmay exist between channels.Notably, these independent channels still only make up about one-third of the total291,672 financial advisors estimated by Cerulli across all channels. However, advisorsacross other channels – from wirehouses and national brokerage firms to insuranceOverall, CRM software was the most widely adopted software among financial advisors,companies and banks – generally have no ability to select their own technology, andat 85.7% adoption, followed by financial planning software at 83.0% adoption. Interest-instead are required to use whatever their parent company has selected on behalf of allingly, this was not the same within channels, as financial planning software was mostadvisors, which means market adoption rates reflect little when it comes to actual userwidely adopted among independent RIAs (87.7% financial planning vs. 84.8% CRMpreferences and satisfaction of advisors themselves.among RIAs), but CRM software was most widely adopted among independent BDs(85.7% CRM vs. 83.0% financial planning among BDs), which speaks to the reality thatbroker-dealers tend to have greater compliance infrastructure (that typically looks to theadvisor’s CRM for compliance review, and therefore more commonly requires its use),while RIAs have a higher preponderance of small solo advisors who are their own ChiefCompliance Officer (and may rely on their own email, client notes in Word documents,and similar notes-capture systems, without feeling a need to have a CRM system to‘review themselves’).As such, the independent channels (both BD and RIA) are our focus for this study, sinceit’s independent advisors who tend to have the most direct control of their softwaredecisions in the first place – making them more likely to be early adopters and also morelikely to terminate unsatisfactory software relationships – such that the trends weidentify amongst independent financial advicers in particular more directly reflect theattitudes of the end advisors using the software.The Kitces Report, Volume 1, 2021More generally, our results reflect a continued focus on the “Big 3” of advisor technology tools – CRM, financial planning, and performance reporting – that form the hub ofwhat all advisors use to build their practices, followed by document management andinvestment data/analytics in addition to two more recent categories that have gainedsubstantial adoption in recent years: account aggregation, and e-signature.Participants In The Kitces Research Technology Study 8 of 74

Advisor Demand Vs Satisfaction With Existing ToolsIn addition to asking financial advisors about what types of software they are using intheir practices, our research also explored how satisfied advisors are with the varioustools they are using and how important those tools are to them.By aggregating these up into category level totals, we can get a sense of where advisors are generally most satisfied with software and where there is the most room forimprovement.results in a better (i.e., more satisfying) product for the advisor. However, the relationshipcould also run in the other direction, and it could simply be a matter of as tools improve– and prove out their valuable use cases – they become more adopted and relied uponuntil they are viewed as essential and important to advisors.In this context, tools that have high importance and high satisfaction may be very hardto break into because advisors who have urgency to buy them (i.e., high importance)are already likely quite satisfied with what they have (i.e., the Market Leaders). Conversely, those categories with low satisfaction must be mindful that if advisors don’t findthe software important, they may not buy it even if the software does improve its userratings.Still, though, this highlights two potential paths for further development of a broad software category: (1) raise the perceived importance of a category (e.g., teaching advisorshow and why a tool could be beneficial to them that they may not be aware of) so thatthey adopt it and use the increased demand (and revenue) to support reinvestment torefine the software to higher ratings; or (2) simply improve the quality of a tech offering(driving higher satisfaction), and then the more useful tool itself may become moredesired (and recognized as more important) to a firm’s operations.The key distinction, though, is that firms that find themselves in the ‘experimental’ category (e.g., student loans, stock options) that are lower on both importance and satisfaction may want to focus more on raising the perceived relevance of the group as a wholeor focusing on internal software improvements, rather than fighting for their marketMarket Leaders And Experimental Softwareshare against their competitors specifically. Or, in other words, firms can work togetherwith their ‘competitors’ to make a bigger pie of relevance for their entire category byUnder this framework, financial planning software, CRM, scheduling tools, documentmaking their category seen as more important, rather than fight over control of a rela-management, and e-signature software all stand out as areas particularly high on thetively small (still-experimental) pie of current market adoption.importance/satisfaction spectrum and represent ‘market

Overall, CRM software was most widely adopted among financial advisors (85.7% adoption), followed by financial planning software (83.0% adoption). Although, notably, this did differ by channel, with CRM being most widely used among advisors in the BD channel - versus financial planning software being most widely adopted among